Secret report details proposed deal on ‘troops for loans’

Proposals for massive loans to the Soviet Union in 1990 in return for a troop deployment against Iraq were outlined in a secret report.

The report on the proposals to Mikhail Gorbachev, then Soviet president, has been uncovered by Exaro from a huge Soviet archive.

Vadim Medvedev, then secretary of the central committee of the Communist Party of the Soviet Union, wrote it after a meeting with Shin Kyuk-Ho, founder and chief executive of the South Korean-based multinational conglomerate, Lotte Group. The meeting was held in Seoul in November 1990, three months after Iraq invaded Kuwait.

Such a loan would be linked with the Soviet Union’s actions for a resolution of the Middle East crisis

Vadim Medvedev’s report to Mikhail Gorbachev in 1990

According to the report, the businessman said that he was speaking on behalf of two former Japanese prime ministers, Yasuhiro Nakasone and Noboru Takeshita. Nakasone was prime minister from 1982 to 1987, Takeshita from 1987 to 1989. The meeting was set up by another South Korean billionaire businessman, the late Chung Ju-yung, the founder and then head of the Hyundai group.

Medvedev said in the report to Gorbachev: “This is to inform you of the proposals by Nakasone and Takeshita on the Middle East, linked with Soviet-Japanese relations, addressed to you and conveyed to me confidentially during my stay in Seoul.

“A Korean businessman, Chung Ju-yung, who is known to you, strongly recommended me to meet Shin Kyuk-Ho, the owner of a major international corporation, Lotte. According to Chung Ju-yung, Shin Kyuk-Ho is one of the most influential businessmen, and is one of the top ten richest people, in the world. The meeting did take place.

“Shin Kyuk-Ho said he lives and works in Tokyo most of his time, and keeps closely in touch with Japan’s leading businessmen and politicians. He is a personal friend of Nakasone.

“He asked to convey the following from Nakasone and Takeshita to you. Given the difficult state of the Soviet economy and the fact that other Western countries, except Japan, are unable to offer large loans to the Soviet Union, the Japanese side was ready to make a decision on the financial assistance to the Soviet Union of 20 to 30 billion dollars.

“It emerged from further discussion that such a loan would be linked with the Soviet Union’s actions for a resolution of the Middle East crisis and the development of Soviet-Japanese relations.”

“In Shin Kyuk-Ho’s view, the situation in the Middle East had reached a dead end. The present status quo can continue until March at the latest, and then it may be ended with disastrous consequences.

“Such a development, in his opinion, can only be prevented with some help from the Soviet Union. It is critically important to send a deployment of 50,000 to 100,000 Soviet troops to the Middle East, accompanied with a statement that the Soviet Union can no longer tolerate Iraq’s flagrant disregard for international law.

“This does not mean that they would have to be involved in military action. But the very fact of a deployment of Soviet troops would show that the USSR not only condemns Saddam Hussein’s actions, but takes concrete measures to restore international order.

“This would remove any basis for the belief that Saddam Hussein is counting on the USSR’s non-intervention, or even secretly hopes for its support. It would remove the suspicion widespread in some quarters that the USSR is almost interested in prolonging the present situation, one of the reasons being high oil prices.

“Publicly, this major financial aid to the Soviet Union should be linked not with the Middle East situation, but with solving the problem of the four South Kuril islands. Returning the islands to Japan, he argued, would not be a big loss to the USSR.

“However, this would allow Japan to establish close links with the Soviet Union. Otherwise, financial assistance to the Soviet Union would be unacceptable to the majority of the Japanese public.”

The four South Kuril islands, which are in the Pacific Ocean, were captured from Japan by the Soviets after World War II.

The report continues: “Shin Kyuk-Ho said that, unlike many others, he believed that the Soviet Union has a legitimate right to these islands. However, he suggests that a stabilisation of the Soviet economy would be much more important than keeping those four islands. He particularly stressed this idea, adding that Japan could more actively promote the development of bilateral links in economic and technological co-operation.

“He remarked that Nakasone or Takeshita could come to the Soviet Union to discuss these proposals.”

According to Medvedev’s report, he promised to convey the proposal to Gorbachev, but his own initial reaction to Shin Kyuk-Ho was non-committal and even sceptical.

The Soviets would welcome Japanese loans, he said, but as a “contribution to the development of ‘perestroika’ in the Soviet Union and to mutual Soviet-Japanese economic co-operation”.

He thought that contributing to Soviet economic reform and co-operation should be the aim of the loans rather than USSR action in the Gulf.

“I reminded him about our principled stance on the Middle East conflict, which involves the use of every opportunity to resolve the problem politically, and about our policy of not using Soviet troops outside the Soviet Union and their gradual withdrawal from abroad.”

Medvedev added that he saw the South Kuril islands as significant to the Soviet Union because the issue of borders was regarded as “acute and sensitive”.

There is no evidence that Gorbachev gave any further reply to the proposal, and it is certain that the offer was not eventually accepted.

Meanwhile, Gorbachev was more receptive to the idea of developing closer business links with South Korea.

Pavel Stroilov is a Russian journalist and political exile living in London, and author of ‘Behind the Desert Storm’. Additional reporting by Alanah Eriksen.